Policy measures have been put in place to help generate equality, which has potentially led to issues as China’s factory outputs have been at their lowest since the start of the pandemic, and they GDP has grown 0.3% under what was forecast.
China has been long hailed as having the world’s largest economy (when measured in Purchasing Power Parity). In terms of GDP, it is on track to being the largest global economy in 2028, and currently ranks second in GDP, next to the USA. However, recently, a complex mix of changing policy, issues in property construction and power issues have led to larger issues for China’s economy. This has led to experts suggesting that China needs to change policies in order to create more liquidity in the interbank market, and to relax obtainment of credit and real estate policies in order to stimulate continued economic growth in the right direction at the same monumental rate.
Changing investments
There have been issues in recent months of the buying of luxury goods by Chinese expats, stretching to Europe, which has led to big brand house like LVMH (owner of 75 luxury brands including Dior, Givenchy, Celine, Moet & Chandon, Princess Yachets, Louis Vuitton etc) as well as powerhouse large brand Hermes, with both experiencing a 3%. As a background to this, Chinese citizens are allowed to take up to $50,000 out of the country annually, but many wealthier citizens would prefer to take more, for taxation purposes, and there has been a long, notorious history of this through money laundering practices.
By the ruling communist party keeping this wealth within its borders, this has helped to bring the overall Chinese economy to where it is now, as wealthy citizens need to spend the majority of their wealth within China, however, this is likely to change. In June of this year, China made moves to loosen these restrictions on Chinese citizens being able to take money out of the country, through the introduction of a particular set of rules for investment: the ‘Wealth Connect’ programme.
These moves have generated a large amount of excitement, despite the numbers allowed for investment still being relatively low, as it speaks to a Chinese future that is more interested – and invested – in liberalisation as well as expansion. It is in stark contrast to previous restrictions placed by the Central bank on ‘dual currency’ which is the concept of Chinese citizens being able to use credit cards to make purchases in a different currency elsewhere.
It is estimated that Chinese households will have $46.3tn to invest in 2025, and that if 10% of households invested $50,000 internationally, this would mean that £2.4tn would be invested worldwide. Whether this level of international investment is ever likely to be seen, is uncertain, but unlikely due to the chaos that it would create within China’s own economy. Despite this, the Wealth Connect programme still portrays a powerful symbolic shift in China’s economy.
Inequality
China has recently made policy moves to help tackle inequality, which has already had an impact on the private sector. China’s reputation regarding poor human rights is seemingly trying to be shaken up by China’s top leader, Mr. Xi Jinping, calling for changes in a ruling put out, by Communist Party Quishi, to help close the wealth disparities and allow for property acquisition by poorer families.
This new move to a greater sense of equality comes from Xi, who has also been known to quote a Confucian scholar from the 19th century when he said, “To destroy a country, you must first eradicate its history.” He feels that it is important that China stays close to the reasoning behind the revolution, and what sparked China to be the ‘red’ (synonymous with communism) country that it is today, which is tied to a one-size-fits-all approach to history, ensuring that a singular narrative is what must be rolled out, to keep a strong tie to ‘red’-focused feelings of nationalism, from the age of “toddlers”, according the Xi.
The new steps made towards equality seem to be hailing back to the communist roots of Xi’s party, as well as trying to put forth a particular image of the party to its citizens, to stifle the dissent seen in Hong Kong in 2019. What keeps China’s economy powerful is deemed by Xi to be largely focussed around a united picture of the past, which helps to create a united future for China. This is achieved at any cost necessary, as is evident by the enslavement, forced sterilisation and torture of Uyghurs that are currently within ‘re-education’ camps in China.
The small shifts towards creating equality by China are quite deliberately limited to Han Chinese people (the majority of the population) who share the same values and ideas about China as the government. Research conducted by the BBC in 2020 showed that approximately 500,000 people were being forced into enslavement through cotton picking in Xinjiang, and that factories are being built within the so-called ‘re-education’ camps. Xi has been intent on keeping Xinjiang Chinese due to the oil-richness of the region and its ability to generated dramatic wealth.
Energy sector
China’s industrial sector has faced coal shortages in recent months as well as the need for more intention being put into changing the tremendous pollution and environmentally damaging practices. China recently came under scrutiny for not attending the COP26 summit this week, and has been advised by a UN report that immediate measures must be taken to change the current climate change disaster.
There were severe shortages in power in September and due to the heightened heights of global commodity prices, there has been a direct effect on the cost of raw materials. China has said, in the COP26 summit, that it will be ‘net zero’ by 2060. Net zero is when carbon emissions are reduced and offset by various measures.
The Shanxi region was also hit with flooding from torrential downpours this year, which spelt bad news for China as the region produces approximately 30% of China’s coal, leading to a significantly higher coal price which has led to many high-energy usage factories, such as steel factories, needing to close or reduce production.
The new policy measures put into place, that are set to affect everything from the property sector to education, are all aimed at long-term economic growth, and may be responsible for these recent issues, but Chinese economic dominance is unlikely to see lasting issues.
